Opinion

What Skills Gap?

Persistent unemployment in the manufacturing sector is more likely driven by inadequate demand, not by a shortage of skilled workers.

Paul Osterman is a professor of Human Resources and Management at the Massachusetts Institute of Technology's Sloan School of Management. 
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Paul Osterman
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Paul Osterman
May 2, 2014, 8:36 a.m.

Most people agree that the U.S. eco­nomy has been char­ac­ter­ized in the past dec­ade by ex­treme wage in­equal­ity and per­sist­ent un­em­ploy­ment. Yet, there is de­bate about the causes.

Two in­ter­pret­a­tions have been very in­flu­en­tial: that in­equal­ity is driv­en by de­mand for skills that are out of reach of many work­ers and, in a sim­il­ar vein, that per­sist­ent un­em­ploy­ment is caused by a mis­match between what firms seek and what po­ten­tial em­ploy­ees can provide.

Giv­en man­u­fac­tur­ing’s prom­in­ence in the U.S. eco­nomy and in the skills-mis­match de­bate, ex­amin­ing in­dustry trends of­fers a sol­id way to as­sess the skills-mis­match hy­po­thes­is. As­sess­ing the truth be­hind this de­bate is par­tic­u­larly im­port­ant for black and Latino work­ers, who con­tin­ue to suf­fer in­cred­ibly high un­em­ploy­ment rates.

In a re­cent re­port, my col­league An­drew Weaver and I as­sess the claim that the man­u­fac­tur­ing in­dustry is ex­per­i­en­cing a short­age of skilled work­ers by us­ing an ori­gin­al, na­tion­ally rep­res­ent­at­ive sur­vey of man­u­fac­tur­ing es­tab­lish­ments that dir­ectly and con­cretely meas­ures skills needs as well as the level of job va­can­cies. It showed that the real­ity is con­sid­er­ably more com­plex than of­ten de­scribed.

The claim that a short­age of skilled work­ers has ex­acer­bated in­equal­ity has gained trac­tion but it is not sup­por­ted by the data. While skill re­quire­ments are real and have in­creased over time, the know­ledge and abil­it­ies man­u­fac­tur­ers seek are well with­in the reach of the vast ma­jor­ity of Amer­ic­ans. For in­stance, while 38 per­cent of man­u­fac­tur­ing firms re­quire math bey­ond simple ad­di­tion, sub­trac­tion, and mul­ti­plic­a­tion, the type of math em­ploy­ees need to be able to handle are stand­ard fea­tures of a good high school edu­ca­tion and part of the cur­riculum for most com­munity-col­lege stu­dents.

Fur­ther, only a minor­ity of man­u­fac­tur­ers re­port dif­fi­culty re­cruit­ing the em­ploy­ees they need. Nearly 65 per­cent of busi­nesses re­port they have no va­can­cies what­so­ever, and an­oth­er 76.3 per­cent re­port they have no long-term va­can­cies (where avail­able jobs have re­mained un­filled for three months or more). Only 16.1 per­cent of sur­vey re­spond­ents — typ­ic­ally plant man­agers — agreed when asked wheth­er lack of ac­cess to skilled work­ers is a ma­jor obstacle.

Per­sist­ent un­em­ploy­ment in the man­u­fac­tur­ing sec­tor is more likely driv­en by in­ad­equate de­mand, not by a short­age of skilled work­ers. Much like the broad­er U.S. eco­nomy, the man­u­fac­tur­ing in­dustry has a lim­ited de­mand for work­ers be­cause busi­nesses have not seen de­mand for their goods and ser­vices pick up in a way that would re­quire sig­ni­fic­antly more hir­ing. Fur­ther, weak de­mand for work­ers is broad-based. Job seekers dra­mat­ic­ally out­num­ber job open­ings in every in­dustry, and un­em­ploy­ment is sig­ni­fic­antly high­er at every edu­ca­tion level than in 2007, be­fore the Great Re­ces­sion began.

This means that the most dir­ect way to quickly im­prove the labor mar­ket is to in­sti­tute meas­ures that boost ag­greg­ate de­mand. This can be ac­com­plished through ex­pan­sion­ary fisc­al policy: large-scale on­go­ing pub­lic in­vest­ments, rees­tab­lish­ing pub­lic ser­vices and pub­lic-sec­tor em­ploy­ment cut dur­ing the Great Re­ces­sion and its af­ter­math, and strength­en­ing safety-net pro­grams.

For black and Latino work­ers those changes are crit­ic­al. In April, over­all un­em­ploy­ment hovered at 6.3 per­cent. But, nearly half of those seek­ing work but un­able to find it were work­ers of col­or. In ad­di­tion, people of col­or are dis­pro­por­tion­ately rep­res­en­ted among the un­em­ployed and even more so among the long-term un­em­ployed.

A ver­sion of this op-ed was ori­gin­ally pub­lished by the Eco­nom­ic Policy In­sti­tute in the re­port “Why Claims of Skills Short­ages in Man­u­fac­tur­ing Are Over­blown.” Paul Os­ter­man is a pro­fess­or of hu­man re­sources and man­age­ment at the Mas­sachu­setts In­sti­tute of Tech­no­logy’s Sloan School of Man­age­ment. An­drew Weaver is cur­rently a doc­tor­al can­did­ate at the Sloan School of Man­age­ment.

HAVE AN OPIN­ION ON POLICY AND CHAN­GING DEMO­GRAPH­ICS?

The Next Amer­ica wel­comes op-ed pieces that ex­plore the polit­ic­al, eco­nom­ic and so­cial im­pacts of the pro­found ra­cial and cul­tur­al changes fa­cing our na­tion, par­tic­u­larly rel­ev­ant to edu­ca­tion, eco­nomy, the work­force and health. Email Jan­ell Ross at jross@na­tion­al­journ­al.com. Please fol­low us on Twit­ter and Face­book.

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